Nexus Mutual: A member-owned alternative to insurance

Smart contract security relies on a combination of professional security audits and bug bounties. While improvements in the former continue to abound, with particular emphasis on the application of Formal Verification, vulnerabilities remain a constant in every day smart contract development: Daniel Perez and Benjamin Livshits of Imperial College estimated the existence of over 21,270 vulnerable Ethereum smart contracts as of February 2019.

These smart contract vulnerabilities, often in the form of a single line of code, can have outsized economic impacts: the infamous DAO hack of 2016 led to the impermanent loss of nearly 14% of circulating Ether, while the Parity Multi-Sig fiasco, the cause of an unwilling accident, has led to the freezing of over 300,000 Ether, currently valued at just under $64m. The Parity incident arose despite audits from both the Parity team itself and the Ethereum Foundation’s development team. More contemporarily, an independent auditor discovered a vulnerability in a 0x contract that put relayer user funds at risk, forcing the redeployment of the entire system, while a potentially catastrophic bug was discovered in the Edgeware lock-up contract, which processed as much as $900m worth of Ether.